Retailers and suppliers need to ‘challenge the norms’
Grocery retailers know their customers and have broad experience with many categories, while private brand suppliers have expertise in a much narrower product range. When retailers and suppliers collaborate, their different perspectives allow for creative synergies that can spur innovation, differentiate private brands from the competition, and build customer loyalty.
This was the overriding theme of Store Brands’ May 17 webinar titled “From the Industry: New Partner Perspectives,” co-sponsored by the Food Marketing Institute (FMI), Daymon, IRI and Digimarc Corp. The webinar was the third of four in a series examining “The Power of Private Brands,” a recent report by FMI’s Private Brand Leadership Council, IRI and Daymon that analyzes the opportunities grocery retailers can leverage, as well as the challenges they face, in developing and marketing store brands.
To draw upon the inventiveness and insights of staff and industry trading partners, grocery retailers need to “make innovation and risk-taking OK” within their organizations, emphasized Doug Baker, FMI’s vice president of industry relations, who participated in the webinar with Jim Wisner, president of Libertyville, Ill.-based Wisner Marketing Group, and Heidi Dethloff, Digimarc’s vice president of marketing. The webinar was moderated by Kevin Francella, brand director for Store Brands.
Focusing on consumer needs and demands, retailers should explore with private brand vendors whether certain products could be manufactured differently — perhaps using fewer ingredients or different packaging technologies, Baker suggested.
“To differentiate, we must challenge the norms,” Baker stressed.
Private brand vendors play a critical role in informing retailers about category trends, Baker continued. “It would be in the best interest of suppliers to proactively provide industry updates to their clients,” he advised. Suppliers, for example, can apprise retailers of impending regulations, market conditions that affect ingredient sourcing and pricing, and new trends in packaging, flavors and product usage.
Retailers and their trading partners tend to come together only when there is a business issue to be addressed, Baker observed. “Unfortunately, this probably is not enough” to allow for strategic brainstorming and to create a culture of innovation, he said.
One component of private brand development ripe for retailer-supplier collaborative innovation is packaging, Wisner observed. “Packaging functionality in particular is an area where store brands can choose to move ahead of the national brands — whether you do that with pull tops, resealable pouches, clear cans or virtual packages or any other way that can make your product more valuable to the consumer,” he said.
Dethloff noted that digital packaging technology such as the Digimarc bar code will become increasingly important in distinguishing brands from their competitors. “As you ‘concept,’ design and develop your private label products, you can explore how your product can actually come to life digitally,” she said, adding that “your packaging becomes a new digital narrator for your brand.”
Citing data from the report, the webinar also highlighted that store brands’ primary role in the industry is that of a loyalty builder, ahead of margin building and leveraging national brands. Loyalty building has moved to the top of the list for several reasons and requires the joint efforts of retailers and their private brand partners.
“It’s all about trips,” Wisner explained, noting that consumers can buy national brands almost anywhere. “If you think about loyalty, it has to come either from your private brands or from the shopping experience you offer your customers.”
Historically, private brands have taken too passive an approach to loyalty building, according to Wisner. “Loyalty at the end of the day comes from experiences that you just can’t get elsewhere,” he emphasized.
One retailer Wisner knows well analyzed every product category in the store, questioning what could be done to make each a brand destination for shoppers. Varying from category to category, the solutions included expanding the range of store brand products, introducing unique items, having promotions and developing better-quality products.
Unlike margin-building, “the neat thing about loyalty is that it puts consumers at the center,” Baker added. “My experience is that consumers brag about your products when they exceed their expectations.” That’s when customers start telling their family and friends about favorite store brands.
Agreeing with one of the report’s key findings, the webinar participants noted that customization is the best way to drive store brand growth. But customization as a strategy isn’t easy.
One challenge is the higher initial costs resulting from having to adapt machinery, invest in new equipment, or operate less efficiently due to shorter run times.
“Another challenge is that typically product decisions are made based on historical information on the targeted brand or product,” Baker said. “If you are developing a product that doesn’t exist, buyers and producers are sometimes a little bit more risk-averse because there is nothing to fall back on.”
Retailers and suppliers need to be willing to share some of the risk in order to drive innovation, Wisner suggested.
“If trading partners are looking to move forward with some innovation that requires a cost expense to both, very early on they should articulate in the conversation each other’s expectations for the business opportunity and develop milestones and KPIs [key performance indicators],” Baker advised, noting that the agreement should also include an exit clause.
On the bright side, there are an infinite number of ways products can be customized, not all of them requiring massive and risky investments. In a category management class Wisner teaches, he asks his students to brainstorm “a list of 100 different ways that you can reimagine, rethink and reinvent a product to somehow make it better, unique or more exciting.” He particularly likes to challenge the class to think creatively about commodity items such as eggs, sugar and canned vegetables.
“What you find out is that there are really no dull products at all — just products that are waiting for whatever imagination and ideas can do with them,” Wisner said. “You can create products that are not only more interesting for the consumer but also a lot more profitable for the retailer.”
The final webinar in the series, titled “From the World: Bringing Scale to Personalization,” will be held on June 21 at 2 p.m. Eastern Time. To register for the webinar or view the first three, visit https://event.webcasts.com/viewer/portal.jsp?ei=1137260.